Nepal’s Finance Minister Yubaraj Khatiwada’s new budget was happening at a different scenario than his previous two. This year he had to contend with a global recession that will hit revenue and the country’s two main sources of income: remittances from Nepali workers abroad and tourism.
The dramatic decrease in income will coincide with an expected steep rise in government expenditure in the coming fiscal year to stimulate the economy, cushion the impact of mass unemployment including of hundreds of thousands of Nepali workers abroad expected to return, as well as increase expenditure for health care.
Khatiwada was already facing criticism for not fulfilling goals and targets of his previous budgets, for example to increase the government’s spending capacity. Also, his promise to identify families living in extreme poverty in 26 districts and bring them into the state’s social security have not materialise.
There is even less likelihood of that happening now since the percentage of people below the poverty line is expected to grow, and there will be less money to dole out.
There are other promises not kept from the previous two budgets, and now even more unlikely to be met: stop farmlands being sold to real estate speculators, create jobs within the country to reduce out migration, double farm output in five years with mechanisation, and self-reliance in basic commodities.
Some of these promises were repeated in Thursday’s budget speech, and with the economic crisis they will now be pushed further back. Despite previous estimates from the Central Statistics Department that the coronavirus pandemic would reduce Nepal’s economic growth rate in the coming fiscal year, Khatiwada projected that Nepal would still aim for 7% growth.
That could still be possible if the country emerges from lockdown soon, remittances do not fall and tourism picks up by the autumn season. But those are a lot of if’s and the 7% projection seems unrealisitic.
This year’s budget was immediately criticised for pushing through non-priority large infrastructure schemes. These funds should have been set aside to increase raise agriculture productivity, invest in job creation for the 500,000 Nepali workers expected to return from abroad as well as those who would have left in the coming year for overseas employment.
However, the minister did scale back Nepal’s annual budget from the Rs15.33 trillion during the current fiscal year to Rs14.74 trillion in the coming year. The development budget accounts for 23% of the total budget with 64% for current account. Nepal expects Rs60.5 billion in foreign aid in the coming year, Khatiwada said.
Many had expected a budget that would be a dramatic departure from the past and take bold decisions to chart a new course in petroleum dependence, renewable energy, agriculture and measures to use the skills and savings of returning migrant workers to boost employment.
To be sure, there are elements of the new budget that address some of these concerns, but most of it is cut and paste from previous programs and do not signify a bold move to confront economic challenges in the wake of COVID-19.
The government has set aside Rs6 billion for control and management of COVID-19, and another Rs12 billion to upgrade healthcare capacity, insuring all health workers, and increasing the overall budget of the Ministry of Health to Rs90 billion to address pre-existing disease burden.
The government will also set aside Rs50 billion fund to support small and medium enterprises and those in the tourism sector who have lost their jobs with soft loans at 5% interest. The tourism industry will also get rebates on income tax for this fiscal year of up to 20% and loans will be interest free. Nepal Airlines will not have to pay parking and infrastructure fees for its aircraft. Tax on aviation fuel has also been waived for domestic carriers. The budget sets aside Rs19 billion for the development of international airports, including preparations for Nijgad, which many say was not the priority.
The budget projects an addition of 1,300MW of hydroelectricity generation capacity in the coming fiscal year, with Tama Kosi and other private sector plants coming online. However, investments in new hydropower projects beyond 2021 are jeopardised because of uncertainty over the $500 US Millennium Challenge Corporation (MCC) grant to build transmission lines to evacuate the power from central Nepal.
Anticipating surplus generation, especially during the rainy season, Khatiwada has announced further subsidies for electric stoves, electric vehicles and industries to increase power consumption. He also announced that 10 units of electricity would be free for small and medium consumers, 25% off for those consuming 150 units per month and 15% off on bills for those consuming up to 259 units.
Agriculture gets a priority, with an increase in the budget for farming and irrigation to Rs41 billion, with Rs10 billion set aside to boost agriculture in far western Tarai with the Mahakali irrigation canal.
Minister Khatiwada has set another ambitious goal for Nepal to be self-reliant in meat, poultry and dairy production and farmers with specific pockets for products, and a 11% increase in the subsidy for chemical fertiliser.
In transport, the budget makes provisions for Rs9 billion for the extension and feasibility study of the Rasuwa-Kathmandu, Birganj-Kathmandu, East-West railway lines. These projects could have been pushed back by two or three years for priority sectors.